Merger of American and US Airways creates world's largest airline

Merger of American Airlines and US Airways was cheered by execs, union.

By
Mary Schlangenstein Bloomberg News Service

December 9, 2013 — 7:59pm

Paul Moseley &#x2022; Fort Worth Star-TelegramFormer American CEOs Tom Horton, left, and Robert Crandall (glasses) led the applause as new CEO Doug Parker, center, had the honor of ringing the Nasdaq bell at company’s headquarters in Texas.

American Airlines Group Inc., formed on Monday when AMR Corp. and US Airways Group Inc. combined, is poised to rise on confidence that the world's largest carrier can avoid the pitfalls that dragged down other mergers.

The stock may reach $39 by 2015, estimated Hunter Keay, a Wolfe Research Inc. analyst, while Jamie Baker of JPMorgan Chase & Co. sees Fort Worth, Texas-based American ­rising to $37. Trading under the ticker AAL, the shares rose 2.7 percent to $24.60 at the close in New York from an opening price of $23.95.

Doug Parker took the helm as CEO with lessons learned in creating the current US Airways in a tie-up with America West Holdings Corp. in 2005. As he seeks $1 billion in new revenue and savings, he plans to smooth technology bumps by using the reservation system at AMR's American, the bigger airline, and has union accords in place to ensure labor peace and predictable costs.

"They are in a good ­position," Savanthi Syth, a Raymond James Financial Inc. analyst, said in an interview. "That's not to say they won't have any hiccups, but they have their own merger experience, and they've watched what's worked and hasn't worked for others. They will be a formidable competitor."

The new company's market value at day's end was $18.6 billion, trailing only Delta Air Lines Inc.'s $24.7 billion in the U.S. industry, according to data compiled by Bloomberg. More than 42 million shares changed hands on Monday.

Bankruptcy exit

Closing the merger capped AMR's emergence from two years in bankruptcy protection, and CEO Tom Horton stepped aside to become chairman until the first annual meeting. The new American will operate 6,700 daily flights to 336 locations in 56 countries, with a fleet of 1,511 mainline and regional jets.

"Today is a big day of ­celebration," Parker said after a rally with employees at American's Fort Worth headquarters. "It's great for employees. All we're going to do today is ­celebrate. We'll go to work tomorrow."

He was joined at the event by Horton and former American CEO Robert Crandall, along with other executives of the combined company and union leaders who backed the merger. Workers packed a large room to cheer and ring bells as Parker rang the Nasdaq opening bell.

The US Airways team already has made changes, starting with eliminating assigned parking spaces for executives and a security guard outside the executive suites.

Revenue, savings

Parker, 52, said last week he hopes to beat his $1 billion goal. That sum matches Delta's initial 2008 target in buying Northwest Airlines Corp. and trails the $1.1 billion to $1.2 ­billion sought in the 2010 merger creating United Continental Holdings Inc. from UAL Corp. and Continental Airlines Inc.

"We all acknowledge we're not the greatest company in the world now," Parker said after the festivities. "We're not where we want to be. The company just emerged from bankruptcy. But we have the right people in place and a platform to get it done."

United and Delta, now the world's biggest airlines, both suffered merger-related bumps. Delta tumbled 37 percent in seven trading sessions after announcing the Northwest deal as investors faulted its synergy goal as too little, and it later raised its sights to $2 billion. Last month, United set a cost-cutting goal of $2 billion by 2017 after posting the sixth-best return among 10 carriers in the Bloomberg U.S. Airlines Index.

American expects to replicate the financial performance of the merged US Airways-America West, which "outperformed the industry from day one," according to US Airways President Scott Kirby, who will take that role at the combined carrier. The airline should lead U.S. competitors in returns and other financial metrics in less than three years, he said.

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